Delhi High Court
Commissioner Of Income Tax vs Nestle India Ltd. on 3 February, 2005
Equivalent citations: (2005)195CTR(DEL)98, 117(2005)DLT680, 2005(80)DRJ282, [2005]275ITR1(DELHI)
Author: Swatanter Kumar
Bench: Swatanter Kumar, Madan B. Lokur
JUDGMENT Swatanter Kumar, J.
1. The appeal of the assessed against the Order dated 6.10.1997 passed by the Commissioner of Income-tax (Appeals) XIII, New Delhi was dismissed by the Income-tax Appellate Tribunal by a detailed order dated 19.9.2001, the legality and correctness thereof is challenged by the Appellant in the present appeal under Section 260A of the Income-tax Act (hereinafter referred to as the `Act')
2. The necessary facts are that assessed filed the return of income on 29.11.1994 declaring a total income of Rs.33,75,58,470/- . An order under Section 143 of the Act was passed on 12.1.1995. However, the case was taken up for scrutiny under Section 143(2) of the Act. Notices were issued to the assessed on 2.2.1995 in response to which the representative of the assessed appeared. The Assessing Officer upon scrutiny found that amount of Rs.2,50,81,308/- could not be permitted to be deducted and they disallowed the deduction of the entire amount in terms of provision of Section 40(a)(i). There was not much dispute with regard to other matters but on this particular aspect the Assessing Officer recorded the following findings :
"The assessed may be correct in saying that the tax deduced by him out of the Royalty payable before 31st March, 1994 merely by passing a book entry, but the claim of the assessed for the allowability of the entire expenditure of Royalty is to be governed by the provision of Section 40(a)(i) in which "deducted" has different connotation as compared to what the assessed has perceived. Again it is emphasised that if the assessed's contention is accepted, then the provision of Section 40(a)(i) will become simply redundant in all similar cases as there is no bar on the assessed for him to pass a simple book entry to show that the tax has been deduced on the Royalty payable or fee payable.
Therefore, the entire amount of Rs. 2,50,81,308/- is hereby disallowed u/s 40(a)(i)."
3. This order of the Assessing Officer was challenged by the assessed in appeal before the Commissioner of Income-tax who vide his order dated 6.10.1997 set aside the order held and directed as under :
"On going through the order in question I do not find any reference to the date of payment of TDS, alleged to have been deducted with regard to the Royalty payment to the non-residents during the year. The A.O. has stated in the order that the payment of Royalty was shown in the books of accounts merely by book entry. However, he has not mentioned as to what was the exact date of payment of tax in respect of such TDS, which was deducted up-to 31st March, 1994 on Royalty payment. I agree with the A.Rs of the assessed that Section 40(a)(i) uses the word "OR" in contradistinction to the word "AND." Therefore, if it is found that the assessed had deducted TDS from the Royalty payment by a book entry and subsequently has paid the amount to the company's account as per the time limit prescribed under the Act (Rule 30 of the Income-tax Rules), then the Royalty payment is to be allowed in the hands of the appellant during this year.
As the payment particulars have not been examined properly, I restore the issue to the file of the A.O. to be examined in the lines suggested by me."
4. The Commissioner of Income-tax held that the conditions of Section 40(a)(i) were fully satisfied as the tax was deducted on the Royalty within the relevant previous year and paid the tax so deducted in accordance with Chapter XVII-B of the Act. However, the assessed himself had conceded in relation to the fact that assessed was not entitled to the benefit in that year because the tax has not been deducted at source and deposited within the prescribed time.
5. The assessed still dissatisfied with the order of Commissioner of Income-tax preferred an appeal before the Income-tax Appellate Tribunal which already noticed were partly allowed for the previous years. Referring to the facts of the case as it understood decided the case arrived at a conclusion hereinafter referred to :
""The facts of this ground of appeal are that during the previous year, the appellant debited Royalty of Rs.8,84,09,109/- in its books of account. This assets of (i) Rs.6,33,27,801/- for which tax was deducted and paid during the previous year and (ii) Rs.2,50,81,308/- for which tax was deducted during the previous year but was paid after the end of the previous year but within the time allowed under Chapter XVII-B read with Rule 30 of the 11 Rules except for an amount of Rs.5,81,868/-. The AO disallowed deduction of Rs. 2,50,81,308/- u/s 40(a)(i) of the Act on the ground that the said section, tax should have been deducted and paid within the previous year.
From the readings of the above provisions, it is very clear that the provisions requires that the assessed should deduct or pay the tax deducted at source. This provision does not say that the tax should be deducted and paid. The undisputed facts of this ground are that the appellant had deducted the tax but paid the same within time allowed under Chapter XVII-B read with Rule 30 of the IT Rules. If the assessed fails to comply this requirement, then recourse to charing of interest penalising the assessed or prosecuting are prescribed under the IT Act. We, therefore, feel that non allowing the claim of expenditure, once the assessed has complied with the requirements of Section 40(a)(i) is unjustified. This addition is therefore deleted."
6. The Commissioner of Income-tax has challenged this order of the Tribunal in the present appeal primarily on the ground that the authorities including the Tribunal have fallen in error of law in interpreting the provisions of Section 40(a) of the Act. It is not only deduction of the tax at source but also the payment/deposit of the same in accordance with the provisions of law, within the same financial year which alone will grant benefit of deduction to the assessed. Absence of either of them in the same financial year would defeat the very object of the provisions.
7. We have already noticed that facts in the present case are not in dispute. We only have to consider whether the present appeal raises any substantial question of law so as to justify admission of this appeal for answering such a question.
8. A Division Bench of this Court after considering the judgments of the Supreme Court having bearing on the question of law, in the case of Commissioner of Income-tax v. S.R.Fragnances Ltd., ITR Vol. 270, 563 held as under :-
"Although the expression "substantial question of law" is not defined in the Act or in any other statute where a similar expression appears its true meaning and connotation is now well settled by various judicial pronouncements Recently in Santosh Hazari v. Purushottam Tiwari, while dealing with an analogous provision contained in Section 100 of the Code of Civil Procedure, their Lordships of the Supreme Court have observed that to determine whether a question of law raised in a case is a "substantial question of law", the tests laid down by the Constitution Bench in Chunilal V. Mehta and Sons Ltd. (Sir) v. Century Spinning and Manufacturing Company Ltd., , still hold good. The five tests so laid are :whether (i) it is of general public importance; or (ii) it directly or substantially affects the rights of the parties; or (iii) it is an open question in the sense that it is not finally settled by the Supreme Court; or (iv) it is not free from difficulty; and (v) it calls for discussion of alternative views."
9. The bare reading of the above enunciated principles of law clearly show that for the court to determine the fact that appeal before the Court involves a substantial question of law the case should essentially fall with either of the afore-referred class of cases. In the present case, the reading of the provisions of Section 40(a) are so clear and unambiguous that it calls for no elaborate discussion on the interpretation of the said provisions. The language of the Section ex facie leaves no doubt in our mind that the approach taken by the Tribunal is in consonance with the settled principles of interpretation of statutes. Section 40 of the Act describes what amounts are not deductible. The Sections opens with the non- obstanti clause and makes it mandatory that the amount shall not be deduced in computing the income chargeable under the profits and gains of business of profession in the cases mentioned therein. The relevant provision, with which we are concerned in the present case, reads as under :
40(a) in the case of any assessed -
(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), Royalty, fees for technical services or other sum chargeable under this Act, which is payable,-
(A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200:
Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
Explanation-For the purposes of this sub-clause.-
(A) "Royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;"
10. It is a settled canon of interpretation of law that wherever a provision uses plain and simple language free of ambiguity such provision should be given its plain meaning without addition or subtraction of any expression into the language of the provisions. The scope of Section 40 spells out what amounts are not deductible from the income charged to tax under the profits and gains of business or profession. Thus, the Section indicates what ought not to be excluded despite anything provided under Section 3 to 38 of the Act where in the case of an assessed any interest Royalty which is payable outside or in India to the non-residents and at which tax is deductible at source under Chapter XVII-B of the Act and if such tax is not deducted or after deduction has not being paid during the previous year or in the subsequent year before the expiry of the time prescribed under sub-Section (1) of Section 200 shall not be deducted. The Section has three ingredients (a) Royalty which is payable outside India or in India to a non-resident; (b) the tax is deductible at source under Chapter XVII-B and has not being deducted; or (c) after deduction has not being paid during the period specified. In the Section it is a composite performance and a satisfaction of these ingredients which would deduct the amount indicated in the Section beyond the mischief of Section 40(a)(i). If language of these ingredients are not satisfied, the obvious result thereof would be that the specified amount shall not be liable to be deducted.
11. There is no dispute to the fact before us that the assessed had deducted the tax at source within the same financial years but deposited the same subsequently even in the next financial year but within the limitation of time specified under Chapter XVII-B of the Act read with Section 200(1) of the Act. This apparently is compliance to the statutory provisions of the Act and the view taken partially by the Commissioner of Income-tax as well as the Tribunal had been called for no interference. Upon interpretation of these provisions, the Tribunal has taken a view which is permissible and is not perverse merely because another view if possible would not give rise to a substantial question of law. Once two interpretations are possible, one which deals in favor of the assessed would be given precedence over the other view. The argument raised on behalf of the Respondent department that the deduction should be allowed in the year of actual deposit of tax per se does not appear to be having any merit. Once time of deposit is specified in the statute itself, it will be unfair to dissect the language to give a meaning which would frustrate the very relief that is sought to be granted to an assessed by the provisions. The Legislature has made it mandatory by using the expression and at one place and by or at the other. They cannot be interchanged and both the ingredients must co-exist simultaneously during the period permissible in law. If the argument of the Respondent is accepted probably in some of the cases, the benefit could never accrue to the assessed as the deduction at source and its payment to the authorities may not ever occur in the same financial year that does not even appear to be the legislative intent inasmuch as Section provides in the situation where deduction is made in one year and is deposited/paid in another year. In our view, the most significant aspect of this provision is its payment within the time specified in law. We have already noticed that the authorities had found it as a matter of fact that the payments of the tax deducted at source were made within the prescribed time. Another pertinent aspect of this case is that against the order of the Commissioner of Income-tax the assessed had preferred an appeal but the department never came up with an appeal before the Tribunal. The scope of the appeal preferred by the assessed was no relation to the amount for which no tax has been deducted as such the scope of the appeal was itself limited which even was partly allowed.
12. For the reasons afore-stated, we see no merit in this appeal and the same is dismissed at this stage itself as it raises no substantial question of law for consideration of the Court.
13. The appeal is, accordingly, disposed of while leaving the parties to bear their own costs.